Strategic Planningold Ch. 4

new Ch. 5

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Chapter 4: Strategic Planning

What is strategy?Corporate, business, and functional levelsEnvironment and SWOT

If you do not look at things on a large scale, it will be difficult for you to master strategy.

Miyamoto MusashiA Book of Five Rings

To win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.

Sun TzuThe Art of War

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.

Niccolo MachiavelliThe Prince

In God we trust. All others must use data.

W. Edwards Deming

In other words…

Ya better back up your decisions and opinions with a combination of logic

and information.

Strategic analysis: central questions

What does the firm do and why? (mission)What is the environment? (e.g., 5 Forces)How do internal strengths and weaknesses mesh with external opportunities and threats? (SWOT)Corporate and business-level strategy?Do their structure and strategy fit together?What alternatives exist, how do we evaluate SR

and LR pros/cons, how do we implement?

Focus on the causes of performance

The important questions: 1. How can you stay alive?2. How can you prosper?

Not just whether a company is successful, but why, and how can it stay that way?

“Why” questions

Imply an underlying theory or strategy, or that performance is an outcome of a

predictable process

One broad definition of strategy

“A specific pattern of decisions and actions that managers take to achieve an

organization’s goals” Hill & Jones

Strategic Management

Level of analysis: the firm

Head Office

Division A Division B Division C

Business functions

Business functions

Business functions

Market A Market B Market C

Corporate Level(CEO, board of directors, and corporate staff)What businesses to be in?

Diversification, integration, alliances

Business LevelDivision managers and staffHow to compete?Cost vs. differentiation, lifecycle issues

Functional LevelFunctional managersHow to carry it out?

Efficiency, quality, innovation, service

SWOT analysis

Internal External

Strengths OpportunitiesWeaknesses Threats

SWOT Analysis

Assess strengths, weaknesses, opportunities, and threats.Example:

Strengths

Skilled management

Positive cash flow

Well-known brands

Weakness

Lack of spare production capacity

Absence of reliable suppliers

Opportunities

New technology

Underserved market niche

Threats

Possibility of competitors entering underserved niche

Context for data and analysis

In business, there is no one correct strategy, approach, or theory

One Theory of a Great Car: Any Others?

Size

StylingA Great

CarTechnology

Big engine

Spacious

Innovative

More power

Inputs Attributes Outcomes

Remember,

STRATEGY = THEORY(A conceptual model of cause-and-effect)

Problem—do we agree on:

The meaning of the goal?On how we get there?

On what’s needed to get there?

Too easy to assume common understanding.

Some problems in the science and art of strategic decision-making

Blunders ???misinterpreting the data

Wishful thinkingignoring the data

Shooting blind (Deming’s point)

Paralysis by analysis Let’s study it some more

Barriers to Good DecisionsTime PressuresSocial Realities

Psychological biasesIllusion of controlFraming effectsDiscounting the future

Psychological Barriers

Illusion of control: belief that one can influence events even when one has no control over what will happen.

Framing effects: phrasing or presenting problems or decision alternatives in a way that subjective influences override objective facts.

Discounting the future: in evaluating alternative, weighing short-term costs and benefits more heavily than longer-term costs and benefits.

Advantages of Group Decision Making

1. More information is available when several people are making the decision.

2. A greater number of perspectives on the issues, or different approaches to solving the problem.

3. Group discussion provides an opportunity for intellectual stimulation.

4. People who participate in a group discussion are more likely to understand why the decision was made.

5. Group discussion typically leads to a higher level of commitment to the decision.

Disadvantages of Group Decision Making

1. One group member may dominate the discussion.

2. Satisficing may occur.3. Groupthink – the pressure to avoid

disagreement can lead to a phenomenon.4. Goal displacement – a condition that occurs

when a decision-making group loses sight of its original goal and a new, less important goal emerges.